Once upon a time, the titans of industry and oil reigned supreme in the realm of business valuations. Flash forward to 2004, and icons like General Electric and ExxonMobil stood tall as the largest companies globally by market cap, boasting values of $319 billion and $283 billion, respectively.
Fast forward two decades, and the landscape has shifted dramatically. Today, tech giants like Apple, Nvidia, and Microsoft lead the charge, each worth over $3 trillion in a fierce battle for the top spot. Following closely are Alphabet, Amazon, and Meta Platforms, boasting valuations of $2 trillion, $1.9 trillion, and $1.5 trillion, respectively.
With a current market cap of around $818 billion, Broadcom (NASDAQ: AVGO) stands on the cusp of entering this elite echelon. Positioned uniquely in the artificial intelligence (AI) infrastructure domain, Broadcom’s trajectory towards the $1 trillion club appears imminent, fueled by the surging adoption of this revolutionary technology.
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A Technological Feast
Broadcom’s domain spans semiconductor, software, and security solutions that permeate the cable, broadband, mobile, and data center realms. With an estimated “99% of all internet traffic traversing through Broadcom technology”, the company assumes a pivotal role in the AI revolution, where its diverse tech arsenal plays a foundational role in generative AI operations within data centers and the cloud.
Furthermore, Broadcom’s recent acquisition of VMWare promises a significant opportunity. By transitioning VMWare’s offerings to a subscription-based model and leveraging cross-selling synergies with existing products, Broadcom is on an accelerated path to bolster recurring revenue.
Recent financial prowess underscores Broadcom’s trajectory. In the fiscal third quarter, revenue surged by 47% year over year to $13.1 billion, accompanied by an 18% rise in adjusted earnings per share (EPS) to $1.24. Buoyed by this robust growth, management upped its full-year revenue forecast to $51.5 billion, indicating a 44% growth trajectory.
The confirmation of strong results and a soaring stock price paved the way for Broadcom’s bold move to enact a 10-for-1 stock split, completed in mid-July.
Navigating the Road to $1 Trillion
Given Broadcom’s pervasive influence through its chips and accessories—integral components in data center operations—the company enjoys a strategic advantage in the AI revolution.
Wall Street projections estimate Broadcom’s 2024 revenue at $51.61 billion, translating to a forward price-to-sales (P/S) ratio of almost 16. Maintaining this P/S ratio, Broadcom would need to amass revenues of approximately $63 billion annually to sustain a $1 trillion market cap.
Analysts’ consensus anticipates revenue growth of 44% in 2024 and 14% in 2025. Should Broadcom meet these milestones, a $1 trillion market cap could be within reach as early as 2026. The accelerating adoption of AI has spurred revised growth estimates, indicating room for these forecasts to prove conservative.
Signs point towards Broadcom’s expedited journey to trillion-dollar valuation. The third-quarter witnessed a 200% surge in infrastructure software revenue alongside an AI revenue projection exceeding $12 billion for the fiscal year, comprising 23% of the forecasted annual revenue.
The forecasted growth of the generative AI market remains nebulous, with projections, courtesy of McKinsey & Company, estimating an annual economic worth of $2.6 trillion to $4.4 trillion over the next decade. This figure doubles when embedded software revenue is factored in.
Despite Broadcom’s stock trading at a premium of 36 times forward earnings compared to the S&P 500’s multiple of 28, the stock’s meteoric 10,720% ascent since 2009—a stark contrast to the S&P’s 471% increase—validates this premium.
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